Around half a million individual critical illness policies are sold each year, making it a cornerstone of financial planning for many families.
Product providers have radically developed their offerings in recent years, including severity based pay-outs and the strengthening of definitions across the most claimed against illnesses. Such changes have been of great benefit to consumers, and strong claims paid statistics published each year all help to maintain confidence in our industry.
Here, we take a look at the ten most important things advisers need to know about CI cover.
1. The basics
Most CI plans cover around 40-50 conditions. The most claimed against illnesses are cancer, heart attack and stroke. Products can also include conditions such as CJD, encephalitis and Crohn’s disease, for example, but these are much rarer in terms of claims.
According to CIExpert founder Alan Lakey, each year around 62 per cent of CI claims are for cancer, 12 per cent heart attack, 8 per cent stroke and 5 per cent multiple sclerosis.
CI cover is typically bought alongside life insurance and therefore can be structured as level, decreasing, index-linked, whole of life, family income benefit, joint or single cover, and so on. In fact, more than 95 per cent of all CI policies sold in the UK include life cover. It makes little difference to the premium but means if someone passes away within the waiting period for a CI claim, it is switched to a death claim rather than being declined.
Children are also often covered under their parent’s plan. Cover can vary between providers in terms of the age of the child, the percentage of the overall sum assured paid, and whether added extras are included, such as hospitalisation benefit.
2. Severity-based payments
CI products are structured to pay out in one lump sum or in staggered partial payments, depending on the severity of the illness. For example, many providers will pay out between 20-25 per cent of the total sum assured for early stage cancers.
Drewberry Insurance Director, Tom Conner says: “This... helps to build consumer trust. If someone is out of work for six months with an illness, they’d be extremely confused and angry if their claim was declined for not meeting a definition, in what they would see as small print.”
Traditionally, early-stage conditions were not covered under CI policies, because the condition is often localised, treatable and is not deemed to be life threatening.
Peter Chadborn, of Advisory firm Plan Money adds: “The increased prevalence of partial payments helps dispel the myth that Insurers try to avoid paying claims. It is also an agreeable concept for clients, who recognise that often it is fair to receive a lesser or earlier payment in certain circumstances.”